Find the sharpe ratios of the risky assets

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Reference no: EM132179473

Question - Suppose three risky assets B₁, B₂ and B₃ have expected returns of 2%, 4% and 3% respectively, and the variance-covariance matrix

Assume that short sales are allowed and the riskless lending and borrowing rate is 1%.

(a) Find the Sharpe ratios of the risky assets B₁ and B₃.

(b) Which one of the two risky assets B₁ and B₃ is better when combined with riskless lending or borrowing? State a reason for your answer.

(c) Now consider the two risky assets B₂ and B₃. State the variance-covariance matrix ∑_*for the two assets and find its inverse ∑_*^-1.

(d) In the case of combining the two risky assets B₂ and B₃ with one risk-free asset, find the tangency portfolio weight vector π_T and state the tangency portfolio allocations.

(e) Find the equation of the efficient portfolio frontier in the case of combining the two risky assets B₂, B₃ with one risk-free asset.

Reference no: EM132179473

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